Cann American Corp. - Quarter Report: 2010 November (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended November 30, 2010

 [  ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to _________

Commission File Number: 000-53712

DEER BAY RESOURCES INC.
 (Exact name of registrant as specified in its charter)

Nevada
 (State or other jurisdiction of incorporation or organization)

3410 Lynmoor Place
Vancouver, British Columbia, Canada V5S 4G4
(Address of principal executive offices) (Zip Code)

#407-2366 Wall Street
Vancouver, British Columbia, Canada V6H 4Z1
(Former address of principal executive offices) (Zip Code)

 (604) 436-3424
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No  [  ] 

Indicate by mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  [  ]  No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No  [  ] 

Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of December 23, 2010, there were 130,110,000 shares of common stock, par value $0.0001, outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

It is the opinion of management that the interim financial statements for the three months and nine months ended November 30, 2010 includes all adjustments necessary in order to ensure that the interim unaudited financial statements are not misleading. Our interim unaudited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

Deer Bay Resources Inc.
(An Exploration Stage Company)
Balance Sheets
As at November 30, 2010 (Unaudited) and February 28, 2010

(See Accompanying Notes)

Deer Bay Resources Inc.
(An Exploration Stage Company)
Statements of Operations
(Unaudited)

See Accompanying Notes
Deer Bay Resources Inc.
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)

See Accompanying Notes

1.    Nature of Operations and Continuance of Business

Deer Bay Resources Inc. (“the Company”) was incorporated under the laws of State of Nevada, U.S. on August 25, 2004. The Company’s principal business is the acquisition and exploration of mineral resources. The Company has not presently determined whether its property contains mineral reserves that are economically recoverable. We have not produced any significant revenues from the Company’s principal business or commenced significant operations and are considered an exploration stage company as defined by SEC Guide 7 with reference to Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) topic 915.

On April 29, 2008 the Company’s articles of incorporation were amended to increase the authorized share capital to 200,000,000 common shares and change the par value to $0.0001. This amendment was applied retroactively to all share, and per share, amounts.

These financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $124,871 as at November 30, 2010 and a working capital deficiency of $49,071 as at November 30, 2010. Subsequent to November 30, 2010 the Company received $60,500 for working capital purposes. Further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

2.    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to donated services and expenses, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Mineral Claim Payments and Exploration Expenditures

The Company is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred. We assess the carrying cost for impairment under the FASB ASC topic 360 at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs subsequently incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the established life of the proven and probable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Long-lived Assets

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Financial Instruments

The fair values of financial instruments, which include cash, note payable and due to related party were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Foreign currency transactions are primarily undertaken in Canadian dollars. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with ASC 820, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

New Accounting Standards Adopted During the Nine Months Ended November 30, 2010

In June 2009, the FASB issued ASC topic 860-20 for changes to the accounting for transfers of financial assets. These changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of variable interest accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. These changes become effective for the Company on March 1, 2010. The adoption of these changes did not have an impact on the Company’s financial statements.

In June 2009, the FASB issued changes to the accounting for variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. This Statement became effective for the Company on March 1, 2010. Earlier application was prohibited. The adoption of these changes did not have an impact on the Company’s financial statements.

In October 2009, the FASB issued ASU 2009-13 for changes to multiple-deliverable revenue arrangements a consensus of the FASB emerging issues task force, which amends ASC topic 605, Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective for us on November 1, 2010. Earlier application is permitted. The adoption of these changes did not have an impact on the Company’s financial statements.

3.    Mineral Interests

On March 18, 2008, the Company entered into a mineral property purchase agreement to acquire a 100% interest in the Emmy Claim located in the New Westminster Mining Division, BC for total consideration of $8,000. This mining interest was held in trust for the Company by the vendor of the property. On January 25, 2010 this mineral claim had lapsed and was re-staked by a third party. On February 4, 2010 the Company entered into a Letter and Trust Agreement with this third party to acquire the Emmy Claim. The Company paid $500 as consideration. The Emmy Claim expires February 4, 2011. The third party holds the Emmy Claim in trust for the Company and upon request; title will be recorded in the name of the Company.

4.     Related Party Loans

The President of the Company loaned $2,939 during the nine months ended November 30, 2010 and is owed $5,439 as at November 30, 2010 ($2,500 as at February 28, 2010).

A shareholder of the Company loaned $5,250 during the nine months ended November 30, 2010 and is owed $13,250 as at November 30, 2010 ($8,000 as at February 28, 2010).

These loans are unsecured, non-interest bearing and due on demand.

5.    Common Stock

During the year ended February 28, 2005 the Company issued 7,610,000 shares of common stock for total cash proceeds of $29,800.

On April 29, 2008 the Company’s articles of incorporation were amended to increase the authorized share capital to 200,000,000 common shares and reduce par value to $0.0001. This amendment has been applied retroactively to all share and per share amounts.

On June 24, 2008 the Company issued 32,500,000 common shares at $.001 per share to nine individuals pursuant to a private placement under Regulation S of the Securities and Exchange Commission for total cash proceeds of $32,500.

On June 24, 2008, the Company issued 85,000,000 common shares at $.0001 to the Company’s President for total cash proceeds of $8,500.

On October 24, 2008 the Company received $5,000 pursuant to a subscription for 5,000,000 common shares at $0.001 per share.

At November 30, 2010, there were no outstanding stock options or warrants.

6.    Subsequent Events

Subsequent to November 30, 2010 the Company received a convertible loan of $60,500. This loan is unsecured, non-interest bearing and convertible into common stock at a rate of one share for each $.01 of debt. The loan was used for working capital purposes.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with our unaudited interim financial statements from our inception (August 25, 2004) to November 30, 2010 and the three months ended November 30, 2010 and 2009, together with the notes thereto included in this Form 10-Q. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus.

Forward-Looking Statements

This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" in Part II, ITEM 1A of this quarterly report below, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our interim unaudited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our interim unaudited financial statements and the related notes that appear elsewhere in this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common shares" refer to the common shares in our capital stock. As used in this quarterly report, the terms "we", "us" and "our" refer to Deer Bay Resources Inc.

Overview

We are a natural resource exploration and production company currently engaged in the exploration, acquisition and development of mineral properties in Canada.

We have no revenues, have incurred losses since our incorporation on August 25, 2004, and have relied upon the sale of our securities in unregistered private placement transactions and loans from related parties to fund our operations. For the foreseeable future, we will continue to be dependent on additional financing in order to maintain our operations and to pursue our exploration activities.

We were incorporated under the laws of Nevada effective August 25, 2004. Our principal offices are located at 3410 Lynmoor Place, Vancouver, BC, Canada V5S 4G4. Our telephone number is (604) 436-3424.

Our Business

Mineral Claims

Since inception, we were an exploration stage company engaged in the acquisition and exploration of mineral properties in Canada.  On April 26, 2005, we entered into a mineral property purchase agreement to acquire a 100% interest in a mineral claim located in the Scadding Township, Sudbury Mining Division, Ontario, Canada for total consideration of $7,500. This claim expired. On March 18, 2008, we entered into a mineral property purchase agreement with Laurence Stephenson (the “Stephenson Agreement”) to acquire a 100% interest in a mineral claim known as the Emmy Claim located in the Emory Creek area of the New Westminster Mining Division, British Columbia, Canada (the “British Columbia Claim”). This claim expired on January 25, 2010 and was re-staked on February 4, 2010 by Teuton Resources Corp. (“Teuton”). The Company entered into a Letter and Trust Agreement with Teuton dated February 4, 2010 and paid Teuton Cnd$500 to hold the re-staked Emmy Claim in trust for the Company. As of the date of this Prospectus the Emmy Claim is in good standing until February 4, 2011. In 2008 we paid $5,000 to a geologist for analysis of the property underlying our Emmy Claim and paid a further $500  to update this analysis to February 10, 2010.    

We have obtained an updated geological report on the property underlying our Emmy Claim. The geology report was originally prepared and dated June 5, 2008 and was updated on February 10, 2010. The updated geology report recommends that a Phase I program of geological mapping, sampling and prospecting be undertaken to further define areas of potential interest. The first priority is a comprehensive review of reports and maps pertaining to all past exploration work, including surface surveys, drilling, trenching and underground exploration followed by a field examination of the subject area. The review should include preparation of compilations of all available maps and sections pertaining to the property adjusted to common scales to permit accurate comparisons of data from different projects. The geophysical data, in particular the chargeability surveys previously carried our, should be professionally re-evaluated and an effort should be made to re-locate the survey grids. Their positions along with those of all known mineral occurrences, trenches, drill holes, adits and geographical features should be established with the aid of GPS instruments. Completion of this phase is expected to identify gaps in data and areas where additional effort is needed and to permit design of an appropriate program of additional work.

The nature and extent of any follow-up work will be contingent on the results of the review but it is recommended that provision be made for a preliminary program of geological mapping, fill-in soil sampling and possibly trenching particularly in the areas of the chargeability anomalies. Consideration should be given to the application of mobile metal ion geochemistry as an approach to overcoming apparent difficulties with heavy overburden in parts of the property.

An estimate of the cost of the proposed initial review and field examination is $10,000 along with an additional $25,000 of further geological investigation in order to complete Phase II. Provision of an additional budget of $50,000 is recommended for the contingent exploration work that would be required to complete the follow-up surveys.

Exploration Stage Company

We are considered an exploration or exploratory stage company because we are involved in the examination and investigation of land that we believe may contain minerals for the purpose of discovering the presence of such minerals, if any, and its extent.  There is no assurance that commercially viable minerals exist on the property underlying our British Columbia Claim, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined. To date, we have not discovered an economically viable reserve on the property underlying our interests, and there is no assurance that we will discover one.

Property Description

The property consists of one mineral claim representing 320 units listed in the table below:

The Pacific Nickel Mine located in Southwestern BC near Hope was a very significant producer of copper and nickel from an ultramafic intrusive geologic environment. As one of the largest Canadian sources of these metals outside of Sudbury, Ontario and Thompson, Manitoba, the lack of exploration in this area makes it a unique underdeveloped mineral belt that requires a concerted exploration program that should include geological mapping; silt, soil and rock sampling, thin section analysis, and airborne geophysics followed by diamond drilling.

The Emory Creek Claim is located 5 kilometers north of the mine area and approximately 11 kilometers north of Hope B.C. on Map Sheet M092H053.

There is tremendous similarity and coincident features in the rock types and geophysical imprint between the geology of the Pacific Nickel Mine area and the ultramafic belt extending to the northwest and southwest from it. It is evident from the public and private record that this belt has not been subjected to detailed recent exploration until now with numerous exploration companies initiating large scale programs. Research into the mine area has provided some excellent exploration features that should be looked for on the unexplored area.

Exploration Program

We will engage a geologist to provide a further analysis of the property and potential for minerals. Our initial program will be to prospect the property locating all signs of unreported previous work and record the results by global positioning system (GPS) coordinates.  After all previous work areas have been accurately located; a geologist can rapidly produce a detailed geological map of the property delineating the favorable areas. Samples will be collected from all exposure of the formation and analyses performed. 

The requirement to raise further funding for exploration beyond that obtained for the next nine month period continues to depend on the outcome of geological and engineering testing occurring over this interval. If results provide the basis to continue development and geological studies indicate high probabilities of sufficient production quantities, we will attempt to raise capital to further our mining program, build production infrastructure, and raise additional capital for further land acquisitions. This includes the following activity:

• Review all available information and studies.
• Digitize all available factual information.
• Complete an NI 43-101 Compliant Report with a qualified geologist familiar with mineralization.
• Determine feasibility and amenability of extracting the minerals via an ISL operation.
• Create investor communications materials, corporate identity.
• Raise funding for mineral development.
• Target further claims for exploration potential and obtain further funding to acquire new exploration targets.

Competition

We operate in a highly competitive industry, competing with other mining and exploration companies, and institutional and individual investors, which are actively seeking mineral based exploration properties throughout the world together with the equipment, labor and materials required to exploit such properties. Many of our competitors have financial resources, staff and facilities substantially greater than ours. The principal area of competition is encountered in the financial ability to cost effectively acquire prime mineral exploration prospects and then exploit such prospects. Competition for the acquisition of mineral exploration properties is intense, with many properties available in a competitive bidding process in which we may lack technological information or expertise available to other bidders. Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition. No assurance can be given that a sufficient number of suitable mineral exploration properties will be available for acquisition and development.

Mineral Exploration Regulation

Our mineral exploration activities are, or will be, subject to extensive foreign laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Mineral exploration is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral exploration and production. Compliance with these laws and regulations may impose substantial costs on us and will subject us to significant potential liabilities. Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on our business operations.

Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations. Our activities may be subject to certain federal, state and local laws and regulations, relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations does not appear to have a future material effect on our operations or financial condition to date. Specifically, we may be subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. However, such laws and regulations, whether national or local, are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry and our current operations have not expanded to a point where either compliance or cost of compliance with environmental regulation is a significant issue for us. Costs have not been incurred to date with respect to compliance with environmental laws but such costs may be expected to increase with an increase in scale and scope of exploration.

Mineral exploration operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our business operations. Mineral exploration operations are subject to foreign, federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Mineral exploration operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of mining methods and equipment. Various permits from government bodies are required for mining operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, state, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. As of the date of this Prospectus, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

Employees 

As of the date of this Prospectus we have no significant employees other than Garry E. Wong, our sole officer and director. We intend to retain independent geologists and consultants on a contract basis to conduct the work programs on the property underlying our interests in order to carry out our plan of operations.

Research and Development Expenditures 

We have not incurred any research or development expenditures since our incorporation.

Subsidiaries 

We do not have any subsidiaries.

Patents and Trademarks 

We do not own, either legally or beneficially, any patent or trademark.

Results of Operations

Revenues

We have had no operating revenues since our incorporation on August 25, 2004 to November 30, 2010.

Expenses and Net Loss for the Three Months and Nine Months Ended November 30, 2010 and 2009

Our general and administrative expenses for the three months ended November 30, 2010 were $15,593 ($35,668 for the nine months) as compared to $2,095 ($10,842 for the nine months) for the comparative period. The majority of expenses were $14,750 of professional fees associated with preparing financial reports for the year.

Liquidity and Capital Resources

We had cash of $nil and a working capital deficit of $49,071 as of November 30, 2010. Subsequent to November 30, 2010 the Company received a convertible loan of $60,500. This loan is unsecured, non-interest bearing and convertible into common stock at a rate of one share for each $.01 of debt. The loan was used for working capital purposes.

Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended November 30, 2010 was $8,285 as compared to $4,260 for the comparative period. These balances are mainly made up of our net loss of $35,667 (2009 - $10,842) as disclosed above adjusted for an increase in accounts payable and accrued liabilities of $27,382 (2009 - $6,582) in the current period.

Cash Used in Investing Activities

Net cash used in investing activities was $nil for the nine months ended November 30, 2010 and 2009.

Cash from Financing Activities

We have funded our business to date primarily from sales of our common stock and loans from related parties. During the nine months ended November 30, 2010 we received $8,189 (2009 - $4,500) in loans from related parties.

Continuance of Business

We have not attained profitable operations and are dependent upon obtaining financing to pursue our proposed business plan. For these reasons our auditors stated in their report dated May 18, 2010 for the years ended February 28, 2010 and February 29, 2009 that they have substantial doubt we will be able to continue as a going concern.

Future Financing

Subsequent to November 30, 2010 the Company received a convertible loan of $60,500. This loan is unsecured, non-interest bearing and convertible into common stock at a rate of one share for each $.01 of debt. The loan was used for working capital purposes. We anticipate continuing to rely on loans from related parties and equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business plan.

Off Balance-Sheet Arrangements

As of November 30, 2010, we had no off-balance sheet arrangements.

Application of Critical Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to donated services and expenses, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Mineral Claim Payments and Exploration Expenditures

The Company is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred. We assess the carrying cost for impairment under the FASB ASC topic 360 at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs subsequently incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the established life of the proven and probable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Long-lived Assets

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable because we are a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, being November 30, 2010. This evaluation was carried out under the supervision and with the participation of our management, including our president (our principal executive officer, principal financial officer, and principal accounting officer). Based upon that evaluation, our president concluded that our disclosure controls and procedures are effective as at the end of the period covered by this quarterly report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director and officer or affiliates, or any registered or beneficial shareholder is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

Not applicable because we are a smaller reporting company.

ITEM 2. UNREGISTGERED SALES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are included with this Quarterly Report on Form 10-Q:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DEER BAY RESOURCES INC.